INVESTMENT MANAGEMENT Syllabus - BBA-BI (PU)

Course Objectives

The course aims to provide the students with the fundamental knowledge of securities and their markets develop skills for computing risk and return from investment and appraise debt and equity securities for investment.

Course Description

This course provides a broad overview of investment environment and introduces different investment alternatives available to an investor along with their markets. Then it moves to computation of risk and return of an individual asset as well as that of portfolios and selection of optimal portfolio. Then it discusses how assets are priced by capital assets pricing model. Finally, it deals with how debt and equity securities are valued for investment decision making purpose.

Course Outcomes

By the end of this course, students should be able to:

• understand investment environment in which they have to undertake investment decisions;
• differentiate financial assets on the basis of their features for investment purpose;
• construct stock market indexes and interpret them;
• understand how securities are issued in the market and how they are traded in exchanges;
• calculate risk and return on of an individual asset and that of a portfolio;
• diversify risk by creating efficient portfolios;
• price securities using capital assets pricing model;
• value bonds and calculate yields on bonds;
• value common stocks using dividend discount models and price-earning models

Course Contents

Unit I: Investment Environment                                                                               4 hours

Meaning of investment; investment alternatives; securities markets; securities market institutions; investment process; the risk-return trade-off; and Nepalese investment environment.

Unit II: Assets Classes and Financial Instruments                                     8 hours

The money market: treasury bills, certificates of deposit, commercial paper, bankers’ acceptance, Eurodollars, the Libor market, yield on money market instruments; the bond market: treasury notes and bonds, inflation-protected treasury bonds, federal agency bonds, international bonds, municipal bonds, corporate bonds, mortgages and mortgage-backed securities; equity securities: common stock – characteristics and listing, preferred stock, depository receipts; stock and bond market indexes: stock market indexes – price-weighted index, value-weighted index, equally-weighted index; Nepal Stock Exchange index, bond market indicators; and derivative markets.

Unit III: Securities Markets                                                                                     6 hours

Concept of securities markets; issue of securities; privately held firms and publicly traded companies; shelf registration; initial public offerings; trading of securities; types of markets; types of orders; trading mechanisms; the rise of electronic trading; ECNs; new trading strategies; globalization of stock markets; trading costs; buying on margin; short sales; functions of Nepal Stock Exchange; and role of Nepal Securities Board. 

Unit IV: Risk and Return                                                                                          6 hours

Concepts of risk and return; measuring investment returns: holding period return, returns over multiple periods, annualizing rates of return, expected return, time series of return; inflation and real rates of return; measuring risk: variance, standard deviation, coefficient of variation; portfolio return and risk of a portfolio of risky and risk-free assets. 

Unit V: Efficient Diversification and CAPM                                                           8 hours

Diversification and portfolio risk; asset allocation with two risky assets; covariance and correlation; the risk-return trade-Off with two-risky-assets; the mean-variance criterion; the optimal risky portfolio with a risk-free asset; efficient diversification with many risky assets; the efficient frontier of risky assets; choosing the optimal risky portfolio. The Capital Asset Pricing Model: The Model: Assumptions and Implications, the security market line, and application of CAPM.

Unit VI: Bond Prices and Yields                                                                               8 hours

Bond characteristics; treasury bonds and notes; corporate bonds; international bonds; innovation in the bond market; bond pricing; bond pricing between coupon dates; bond pricing in excel; bond yields: yield to maturity, yield to call, realized compound return versus yield to maturity; bond prices over time; yield to maturity versus holding-period return; zero-coupon bonds and treasury STRIPS; after-tax returns; default risk and bond pricing; junk bonds; determinants of bond safety; bond indentures; yield to maturity and default risk; credit default swaps.

Unit VII: Equity valuation                                                                                        8 hours

Valuation by comparables; limitations of book value; intrinsic value versus market price; dividend discount models; the constant-growth DDM; stock prices and investment opportunities; life cycles and multistage growth models; price–earnings ratios: the price–earnings ratio and growth opportunities; pitfalls in P/E analysis; other comparative valuation ratios; free cash flow valuation approaches; comparing the valuation models; the problem with DCF models.

Text book

Bodie, Z., Kane,  A.,  &  Alan,  J. M.  Essentials of investments. New York: McGraw Hill.

References

1. Alexander, G. J., Sharpe, W. F. & Bailey, J. V. Fundamentals of investments. New Delhi: Prentice Hall of India Ltd.
2. Jordan, B. D. & Miller, T. W. Fundamentals of Investments. New York: McGraw-Hill Irwin.
3. Reilly, F. K. & Keith, C. B. Investment analysis and portfolio management.  New Delhi: Cengage Learning (India) Private Limited.